Australian Aluminium Council submission on the National Energy ...
27th February 2012
Attn: Energy Savings Initiative Secretariat GPO Box 854 Canberra ACT 2601 Email: [email protected]
PO Box 63, Dickson ACT 2602 Ph: 6267 1800 Fax: 6267 1888 [email protected]
Australian Aluminium Council submission on the National Energy Savings Initiative Issues Paper Introduction The Australian Aluminium Council (AAC) welcomes the opportunity to provide comment on the National Energy Savings Initiative (ESI) Issues Paper. The AAC is the peak body representing the aluminium industry in Australia. Members operate in bauxite mining, alumina refining, primary aluminium smelting, as well as downstream processing (rolling and extrusion). Australia is the world’s leading producer of bauxite (71mt), second largest producer of alumina (20mt) and fourth largest producer of primary aluminium (1.9mt). Whilst recognising the Government has not yet committed to pursuing a national Energy Savings Initiative policy, the AAC does not support the imposition of what would be yet another climate-related policy on top of the increasing number of existing and proposed policies and programs at both the Federal and State level. As such, this submission does not attempt to address the specific questions as laid out in the Issues Paper, but rather focusses on areas of direct importance to this industry. Energy Efficiency and Large Users In terms of energy usage, alumina refining and primary aluminium smelting represent the most energy and emissions intensive ‘upstream’ sectors within this industry. Rolled aluminium production has also been recognised as a highly emissions intensive activity under the Clean Energy Future (CEF) package. Australia’s alumina industry is a major energy user, requiring mainly heat and steam to refine bauxite to alumina. In 2010 the Australian alumina industry used 10.5 GJ per metric tonne of alumina produced. The Australian primary aluminium industry is a major electricity consumer, dominated by continuous base load demand. In 2010 the industry used 29,000 GWh of energy - around 13 per cent of Australia’s electricity consumption. 1
The energy used in both alumina refining and aluminium smelting is typically around 25-35 per cent of operating costs. As large users of energy this industry is acutely aware of the benefits of energy efficiency, especially when considering energy costs in smelting and refining are a significant proportion of operating costs. The importance of keeping costs in check is something every business spends considerable time on, and this is indeed the case for large energy users, especially in today’s economic climate. The Australian aluminium industry is committed to energy efficiency – and examples of major technology upgrades which have led to significant improvements can be found in the AAC submission to the PM’s Task Group on Energy Efficiency Issues Paper (Appendix 1). Impact on Industry The Australian alumina and aluminium industries have been competitive and viable businesses for more than 50 years – underpinned by access to abundant raw materials, reliable and affordable infrastructure, a positive investment climate, high levels of technological expertise within the industry, as well as access to competitively priced energy based on world class resources. However, Australian EITE industries are currently operating under difficult economic and market conditions. The effects of the high Australian dollar, low aluminium price, high global inventories, and ever increasing input costs are putting significant pressure on local producers (Box 1).
Hydro Aluminium Kurri Kurri Cuts Production “So far, Norsk Hydro has cut 60,000 tons of capacity at its Kurri Kurri smelter in Australia, an operation plagued by high energy prices and hit by the appreciation of the Australian dollar against the U.S. dollar. The company could cut more, but no decision has yet been made.” (Europe Business News, Feb 16 2012)1 “In January, Hydro announced it would cut the smelter’s 180,000-tpy production capacity by one third, at a cost 150 jobs and around $20 million… Australia’s strong currency, high labour costs and challenging power situation also contributed to the curtailment decision.” (Metal Bulletin, Feb 20 2012)2 Point Henry Under Review “The smelter is losing money because of low aluminium prices, rising costs, such as electricity, and the strong dollar, forcing a review to decide on production cuts.” (SMH, Feb 9 2012)3 Box 1
1
2
http://online.wsj.com/article/SB10001424052970204792404577227302941985144.html http://www.metalbulletin.com/Article/2982054/Base-metals/Kurri-Kurri-is-Hydros-most-troubled-plant-could-cut-productionfurther.html?eventcookielogin=Login&cookielogin=1 3 http://www.smh.com.au/nsw/more-job-cuts-likely-as-alcoa-puts-point-henry-under-review-20120208-1reud.html 2
When coupled with likely increases in energy prices into the future and the imposition of existing energy efficiency and climate policies and programs; such as the Clean Energy Future package, the Renewable Energy Target, Energy Efficiency Opportunities, NSW Energy Savings Scheme, and Victorian Energy Efficiency Target – the future is increasingly challenging for EITE industries in Australia. Therefore, the Australian aluminium industry does not support the imposition of what would be yet another potentially costly policy on top of the increasing number of existing and proposed policies and programs at both the Federal and State level. Independent Reviews There have been a number of reviews and papers over recent years looking at various energy efficiency and climate policies and programs. The Productivity Commission4, for example, found that the introduction of a price on carbon would strengthen the existing primary market mechanism encouraging energy efficiency (i.e. the price of energy), and separate energy efficiency schemes were unwarranted. In a separate report, the Wilkin’s Review5 concluded “…the extent of energy efficiency’s contribution to national emissions reductions should be left to the carbon market to determine. Measures which seek to ‘accelerate’ the take up of energy efficiency, through various means, are inconsistent with a commitment to least cost abatement.” Other Key Issues Bearing in mind the AAC’s reservations in proceeding down the path of a national ESI and the likely additional burden such a scheme would place on industry - there are a number of key issues relevant to EITE industries that need to be considered when thinking about a national ESI. ESI Objectives The AAC is concerned that there does not yet appear to be a core objective providing clear direction for any potential ESI policy. The Issues Paper canvases a range of objectives and associated policy options, with the possibility of very different policy outcomes depending on the chosen path. EITE Assistance The Government recognises that carbon pricing in Australia, without similar price imposts on competing countries, has the potential to seriously disadvantage emissions-intensive tradeexposed (EITE) industries. Therefore, the CEF legislative package will provide assistance to EITE industries through the Jobs and Competitiveness Program (JCP) at the rate of 94.5 per cent for highly emission intensive industries and 66 per cent for moderately intensive industries. Other programs, such as the Renewable Energy Target (RET) and the NSW Energy Savings Scheme (ESS), also recognise the competitiveness impacts on EITE industries.
4
5
2008 Submission to the Garnaut Review (www.pc.gov.au/research/submission/garnaut) Strategic Review of Australian Climate Change Programs (www.finance.gov.au/publications/strategiv-reviews/index.html) 3
A national ESI would need to recognise the vulnerability of EITE industries in the absence of similar cost imposts on global competitors, and put in place measures to minimise the adverse impacts on local producers. In the AAC’s view this would be best achieved by removing EITE industries entirely from coverage of a national ESI. Barriers to the Uptake of Energy Efficiency Improvements Any national ESI would also have to take account of existing barriers to the uptake of energy efficiency improvements. It should be noted that these barriers do not represent market failures. In alumina refining and aluminium smelting the most likely barriers include: - The high capital cost and inefficiency associated with early technology replacement for long-life assets; - lack of investment capital due to unfavourable regulatory and economic conditions - policy uncertainties (e.g. future national and global climate change policies and measures); - the availability of globally-competitive, long-term energy contracts; and - taxation depreciation arrangements. Removal of Existing Energy Efficiency Programs The passage of the Clean Energy Future legislative package will see the introduction of an explicit carbon price from 1 July 2012. This will create a powerful incentive for energy users to seek out cost effective energy efficiency opportunities within their operations, over and above the extensive programs and measures they already have in place. Therefore, existing Federal and State policies and programs aimed at achieving cost effective savings opportunities, such as: the Energy Efficiency Opportunities program, NSW Energy Savings Scheme and the Victorian Energy Efficiency Target; should be wound down and eventually removed. Keeping such duplicative programs active would only add to the already significant administrative and compliance burden on industry. Conclusion Thank you for the opportunity to provide comments on the Issues paper. Please do not hesitate to contact me if you have any questions. Yours sincerely,
MICHAEL ISON MANAGER – POLICY AND RESEARCH AUSTRALIAN ALUMINIUM COUNCIL T: 02 6267 1800 [email protected]
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APPENDIX 1 3th May 2010
Secretariat to the Task Group on Energy Efficiency c/- Department of Climate Change and Energy Efficiency GPO Box 854 Canberra ACT 2601
PO Box 63, Dickson ACT 2602 Ph: 6267 1800 Fax: 6267 1888 [email protected]
Email: [email protected]
Australian Aluminium Council submission on the Prime Minister’s Task Group on Energy Efficiency Issues Paper The Australian Aluminium Council (AAC) welcomes the opportunity to make this submission on the Prime Minister’s Task Group on Energy Efficiency Issues Paper. Key Points •
Australian aluminium smelters and alumina refineries run at or close to world’s best practise for their technology types.
•
Improvements in energy efficiency predominantly require capital investment. In a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency.
•
Any new energy efficiency policy or programs must take account of the impacts of existing or proposed Australian climate change policies, such as an Emissions Trading Scheme (ETS) and the Renewable Energy Target (RET), or risk seriously damaging the international competitiveness of energy-intensive Australian industries such as aluminium and alumina.
•
Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment.
•
Assistance could be given by the Government during the design phase to ensure maximum energy efficiency.
•
For these reasons, the AAC strongly opposes mandated approaches to investment in energy efficiency projects – more can be achieved through government and industry working together in partnership.
5
Industry Background Australia is the world’s leading producer of bauxite (70.8 Mt in 2008), second largest producer of alumina (19.8 Mt) and the fifth largest primary aluminium metal producer (1.98 Mt). Globally, aluminium production declined by around 15 per cent in 2009 as a result of the Global Financial Crisis; however, Australian smelters took the lightest hit (around 2 per cent reduction) to production due to the low-cost and energy efficient nature of their operations. The Australian primary aluminium industry is a major electricity consumer, dominated by continuous baseload demand. Whilst the industry is a major domestic user of electricity, Australian aluminium operations are amongst the most energy efficient in the world due to sound management and continual investment. In 2008 the industry used 29,700 GWh of energy - around 11.6 per cent of Australia’s electricity consumption in 2008. The energy used in aluminium smelting is around 25-30 per cent of operating costs. Australia’s alumina industry is also a major energy user, requiring mainly heat and steam to refine bauxite to alumina. The energy used in alumina refining is also around 25-30 per cent of operating costs, and the energy intensity of alumina refining has improved by 12 per cent since 2002. Cogeneration has been implemented at some sites, predominantly gas fired. Co-generation is under consideration at other sites, where appropriate gas contracts can be sourced, and represents a significant opportunity for improved energy efficiency if the investment can be found to be viable. Improvements in energy efficiency in the Australian aluminium industry and performance of Australian facilities against global competitors are shown in figures 1-3 below. Australian Primary Aluminium Production & Smelter Energy Consumption 15.500
2,500,000
15.400
15.300
15.200
15.100
1,500,000
15.000
14.900
1,000,000
14.800
14.700
500,000
14.600
14.500
0 1990
1993
1994
1995
1996
1997
1998
1999
2000
2001
metal (tonnes)
2002
2003
AAC MWh/tAl
Figure 1: Source: Australian Aluminium Council data
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2004
2005
2006
2007
2008
2009
MWh/t Aluminium
Prodcution (tonnes)
2,000,000
Electrical Power used per tonne of aluminium production (2008) 16,000 15,800
kWh per tonne
15,600 15,400 15,200 15,000 14,800 14,600 14,400 Africa & South Asia
North America
Latin America
Asia
Europe
Oceania
Weighted Average
Figure 2: Source: International Aluminium Institute
Energy used per metric tonne of metallurgical alumina (2008) 17,000 16,000
Megajoules Per tonne
15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 Latin America
Africa & East Asia and South Asia Oceania
Europe
North America
Weighted Average
Australia*
Figure 3: Source: 2008 International Aluminium Institute & Australian Aluminium Council data (*)
Australian aluminium smelters and alumina refineries run at or close to world’s best practise for their technology types.
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The Need for Competitive Energy Without Supply Reservations The price of aluminium is set globally on the London Metal Exchange (LME) (and alumina as a percentage of this), limiting the ability of Australian producers to pass on the cost of energy price increases to customers. Such cost imposts at national and/or state level that are not also imposed on competitors will undermine Australia’s international competitiveness. Without competitive energy, growth in Australian alumina and aluminium production will not occur and existing operations may be prematurely phased out. With electricity dominating the controllable costs in aluminium smelting, the AAC has serious reservations with any policy initiatives which impose mandated market conditions or limits within the electricity market that result in (unrecoverable) increased energy costs for the industry. The AAC strongly opposes mandated approaches to investment in energy efficiency projects – more can be achieved through government and industry working together in partnership. Investment is the key Australia’s alumina refineries and aluminium smelters are long-life and relatively expensive investments – valued at over $50 billion in today’s dollars. The AAC estimates that a large (500kt) aluminium smelter requires around $50 million per annum in capital investment just to sustain operations. This investment that must be drawn from a limited pool within each corporation - operations are competing for access to this capital within their own global corporations. Given the historical focus on minimising costs, including energy costs; significant improvements in energy efficiency are only likely to be achieved through significant investment of capital to update technology or replace key energy components of facilities. It is easy to see that any cost pressures that result from policy interventions will place pressure on such investment and make it harder for Australian operations to compete for the funds required to maintain their highly efficient operations. An ETS and the expanded RET are examples of policies that will, even with the proposed assistance for emissions intense trade exposed (EITE), significantly increase energy costs for Australian EITE industries. Energy is a significant part of the cost base for aluminium smelting and alumina refining; however, it is but one of a number of business inputs alongside of project and business risks, capital expenditure constraints, asset life and other raw material costs. In order to be able to consider undertaking what will most likely be large-scale projects to improve energy efficiency, alumina refinery and aluminium smelter operators will need access to significant investment dollars, which will simply not be available if poor policy options push energy costs too high. Given the structure of Australia’s economy, its natural areas of competitive advantage and the circumstances of competitors, Australia must ensure that any measures introduced to address energy efficiency and climate change are globally effective and do not impact on the global competitiveness of key Australian industries.
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Improvements in energy efficiency predominantly require capital investment. In a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency. Any new energy efficiency policy or programs must take account of the impacts of existing or proposed Australian climate change policies, such as an ETS and the RET, or risk seriously damaging the international competitiveness of energy-intensive Australian industries such as aluminium.
Australian Aluminium Industry - Committed to Energy efficiency The Australian alumina and aluminium industry is currently competitive as a result of abundant raw materials, reliable and affordable infrastructure, a positive investment climate, a high level of technological expertise enabling world’s best practice in smelter operation, as well as access to competitively priced electricity based on Australia’s world class resources. The industry is continually improving its energy efficiency, not only through constant and close management of key energy and electricity-intense processes, but through major technology upgrades when investment and operational conditions allow. Some examples of major smelter or refinery upgrades that have led to significant improvements in energy efficiency over recent years include:
•
Tomago Smelting Energy Efficiency Project (2009-2014) –
– –
•
Tomago Aluminium has received accreditation for an energy efficiency project under the NSW Energy Savings Scheme (2009), aimed at progressively reducing the rate of electricity consumption in the electrolytic conversion process over several years through a number of technology improvement initiatives These initiatives include reducing losses from high amperage buss bars, introducing modified carbon anodes and cathodes, as well as refining cell operating parameters Potential savings in greenhouse gas emissions are in the order of 60,000 tonnes per year
QAL Project to Replace Rotary Kilns for Calcination (2004) – –
– •
$175 million to replace rotary kilns with three gas suspension units The more energy efficiency units use 25 per cent less natural gas and have resulted in a saving of 250,000 of CO2 emissions 95 per cent reduction in particulate emissions
Hydro Kurri Kurri Smelter Upgrade (2005) –
–
–
$40 million upgrade to Potline No.1, replacing old (1968) technology with new (sideworked pre-bake) in order to increase metal production, reduce greenhouse emissions and improve safety Resulted in an annual increase of 6,800 tonnes from increased amperage and improved current efficiency Reduced emissions of dust, fluorides and perfluorocarbons by between 50-95 per cent.
9
•
Pinjarra Refinery Co-generation and Efficiency Project (2006-2007) –
– –
– •
$800 million upgrade of existing equipment and best-practice technology including significantly improved heat exchange systems and to install new emissions control equipment Alumina production increased by 17 per cent (660kt) whilst decreasing energy use Two new Alinta gas-fired co-generation units at Alcoa’s Pinjarra refinery were commission to generate electricity for third-party customers, with the waste heat used to create steam for use by the refinery – reducing energy consumption by approx. 0.52 GJ/t of production A strategic analysis in 2007 identified 15 energy efficiency opportunities which, if implemented, could reduce energy intensity by a further 5 per cent over 5 years6 Energy Efficiency at Alcoa’s Point Henry Smelter
–
– –
–
•
Partnership with Sustainable Energy Authority of Victoria (SEAV) with a primary focus on examining combustion efficiency in the anode baking process (representing about 3 per cent of overall smelter energy usage) Results show a gas consumption reduction, a reduction in process variability and a greater energy focus with improved productivity This project highlighted the fact that there is always room for improvement in terms of energy efficiency, and that industry must remain open-minded and embrace new initiatives the Alcoa-SEAV partnership highlighted that collaboration between Government and industry can drive additional energy performance...particularly in energy services and supporting operations of energy intensive industries
Alcoa Energy Efficiency Network – –
–
•
Established in 2002 and is based on partnership with the U.S. Department of energy The network conducts energy efficiency surveys at operating locations, identifying areas of possible improvement. The locations then agree which projects will be identified on a priority basis To date, this program has identified more than US$80 million in potential savings opportunities
Boyne Smelter Upgrade – – –
US $617M committed in 2009 to two projects which will modernise and extend the life of the Boyne Island aluminium smelter The first project, construction of a new baking furnace, will reduce onsite greenhouse gas emissions by ~20,000 to CO2-e annually due to improved energy efficiency. The second project, which includes overhead crane replacement and a crane runway upgrade, will result in a more efficient crane/alumina transport system
Australian alumina and aluminium industries are energy intensive, and by default are always looking for ways to reduce energy consumption. From the examples above it can be seen that many large and small-scale projects have been successfully implemented over recent years. AAC member companies will continue to strive to identify and implement such projects into the future. 6
Industry Leader Case Study – Energy Efficiency Opportunities (April 2008) 10
Possible Ways Forward Whilst energy is an important consideration for both alumina refineries and aluminium smelters, it is not the only consideration. Whether for a new smelter or refinery or a significant expansion to an existing facility, other factors (e.g. capital expenditure constraints, and other raw material costs) also affect investment decisions. Energy efficiency projects of the scale needed for alumina refining and aluminium smelting may be assisted through instruments such as preferential tax treatment. This would provide a greater incentive for companies to consider investing in areas of energy efficiency. The approach mentioned above could be coupled with the application of energy efficiency audits for new projects or proposed expansions. The audits would become part of the approvals process for major capital investments and, if best practice energy efficiency can be demonstrated, then the project could be fast-tracked through the process. An example energy efficiency project application for alumina refining is co-generation. Alumina refineries have a requirement for baseload energy (in the form of heat and steam) and therefore are highly suited to the application of cogeneration technology. Conclusion Improvements in energy efficiency predominantly require capital investment, and in a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency. Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment. Energy efficiency audits could form part of the approval process for a major capital investment, where a demonstration of significant improvement in energy efficiency would see preferential status given to the project (be it a greenfield or brownfield investment) Thank you for the opportunity to provide comments on the Issues paper. Responses to relevant questions posed in the issues paper are provided in the attachment. Please contact me if you have any questions. Yours sincerely,
MICHAEL ISON MANAGER – POLICY AND RESEARCH AUSTRALIAN ALUMINIUM COUNCIL T 02 6267 1800 M 0429 923 605 [email protected] 11
Attachment A Issues Paper Questions • What do you see as the key goal(s) of
energy efficiency? What is the simplest way of measuring progress against these key goal(s)? • How could these key goal(s) be better communicated to all sectors of Australian society?
AAC Response The key goals of energy efficiency, as mentioned in the Issues Paper, should focus on continuing Australia’s strong economic growth through more energy efficient management of all aspects of the economy. Such an approach will increase our energy security, reduce peak energy demand events, reduce air emissions and lower energy bills for residential and commercial users. However, whatever strategies and measures are put in place to achieve the goals mentioned above, they must recognise the levels of energy efficiency already achieved by Australian operations and not jeopardise the international competitiveness of energy intensive trade exposed industries such as alumina and aluminium. A good measure of the successful implementation of energy efficiency and other related programs would be a strong, growing industry spurred on by positive industry/government partnerships and incentives for industry to confidently invest in energy efficient technology over the short, medium and long term.
• What do you consider a step change in energy efficiency to be?
Step changes in energy efficiency for alumina refineries and aluminium smelters can only be achieved with the right investment conditions.
• Where do you see the greatest potential for a step change improvement in energy efficiency in Australia over the next decade? What can be done to unlock this step change potential?
For alumina refining, for example, this could involve the addition of production units; and for aluminium smelting large scale projects such
• What needs to be done to ensure step change keeps us at the forefront of OECD energy efficiency improvements? • What non-greenhouse co-benefits could be delivered through a step change in energy efficiency in Australia?
as increasing the amperage or the addition of a new potline could be considered. All of the options available to alumina refineries and aluminium smelters require significant levels of investment. For example, the BHP Billiton Worsley alumina refinery expansion is estimated to cost around $US 2.2 billion, and 12
the possible addition of a potline at Alcoa’s • Which existing measures could be part of Portland smelter has been estimated at around delivering step change? What role would $US1.2 billion. they play? Consider Commonwealth, State and Territory, and local measures. Please comment on the relative efficiency of implementation options where applicable.
Effective policies that provide investment certainty and promote strong growth in energy intensive industries will make it more attractive for companies to invest in such long-term and large scale projects. The availability of gas (for alumina refining) and internationally competitive electricity (for aluminium smelting) will also impact on investment decisions.
• What do you believe are the key barriers to uptake of energy efficiency improvements? • What would be the most efficient and effective way(s) of overcoming these barriers? • What groups in society might find energy efficiency actions difficult to undertake or access? How can energy efficiency policies target these groups? • How can energy efficiency measures be implemented in a way that takes into account the different energy needs of urban/regional and remote Australia?
Australian facilities rely on continual investment in order to maintain, and improve where possible, their already high levels of efficiency. If measures are put in place that reduce the competitiveness of our operations, then the ‘maintenance’ investment required to keep Australian alumina refineries and aluminium smelters at the forefront of low-energy technology would be put at risk. The difference between the most energy efficient processes and technologies available and those actually in use will vary widely from sector to sector for a number of reasons.
• How do time-of-day and time-of-year changes in demand influence energy efficiency in Australia?
In alumina refining and aluminium smelting the most likely barriers preventing closure of this ‘energy efficiency gap’ include: - technolgy replacement inertia caused by the very nature of long-life assests; - policy uncertainties (e.g. future climate policies); availability of globally-competitive longterm electricity contracts; and taxation depreciation arrangements -
• What do you see as the critical governance challenges and opportunities
Critical governance challenges are and will continue to be the piecemeal and
for improving energy efficiency in Australia?
uncoordinated development of policies and programs across all levels of government.
• Which institutions should play a role in
A coordinated and streamlined approach has 13
governance arrangements for energy efficiency? Are there international examples of good institutional
the potential to reduce duplication and minimise the economic impact of energy efficiency policies and programs on households
arrangements that Australia could adopt?
and industry.
• What information should be used to provide a stronger evidence base for future policy, monitoring and evaluation? What is the most effective way to collect and distribute this information? • What are the cost-effective ways in which governments can facilitate new investment in energy efficiency? • What can governments do to leverage greater understanding, viability and uptake of more innovative approaches to financing and implementing energy efficiency? • What are some new or different business models that improve energy efficiency? How could governments foster these?
Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment. Energy efficiency audits could form part of the approval process for a major capital investment, where a demonstration of significant improvement in energy efficiency would see preferential status given to the project (be it a greenfield or brownfield investment)
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Attn: Energy Savings Initiative Secretariat GPO Box 854 Canberra ACT 2601 Email: [email protected]
PO Box 63, Dickson ACT 2602 Ph: 6267 1800 Fax: 6267 1888 [email protected]
Australian Aluminium Council submission on the National Energy Savings Initiative Issues Paper Introduction The Australian Aluminium Council (AAC) welcomes the opportunity to provide comment on the National Energy Savings Initiative (ESI) Issues Paper. The AAC is the peak body representing the aluminium industry in Australia. Members operate in bauxite mining, alumina refining, primary aluminium smelting, as well as downstream processing (rolling and extrusion). Australia is the world’s leading producer of bauxite (71mt), second largest producer of alumina (20mt) and fourth largest producer of primary aluminium (1.9mt). Whilst recognising the Government has not yet committed to pursuing a national Energy Savings Initiative policy, the AAC does not support the imposition of what would be yet another climate-related policy on top of the increasing number of existing and proposed policies and programs at both the Federal and State level. As such, this submission does not attempt to address the specific questions as laid out in the Issues Paper, but rather focusses on areas of direct importance to this industry. Energy Efficiency and Large Users In terms of energy usage, alumina refining and primary aluminium smelting represent the most energy and emissions intensive ‘upstream’ sectors within this industry. Rolled aluminium production has also been recognised as a highly emissions intensive activity under the Clean Energy Future (CEF) package. Australia’s alumina industry is a major energy user, requiring mainly heat and steam to refine bauxite to alumina. In 2010 the Australian alumina industry used 10.5 GJ per metric tonne of alumina produced. The Australian primary aluminium industry is a major electricity consumer, dominated by continuous base load demand. In 2010 the industry used 29,000 GWh of energy - around 13 per cent of Australia’s electricity consumption. 1
The energy used in both alumina refining and aluminium smelting is typically around 25-35 per cent of operating costs. As large users of energy this industry is acutely aware of the benefits of energy efficiency, especially when considering energy costs in smelting and refining are a significant proportion of operating costs. The importance of keeping costs in check is something every business spends considerable time on, and this is indeed the case for large energy users, especially in today’s economic climate. The Australian aluminium industry is committed to energy efficiency – and examples of major technology upgrades which have led to significant improvements can be found in the AAC submission to the PM’s Task Group on Energy Efficiency Issues Paper (Appendix 1). Impact on Industry The Australian alumina and aluminium industries have been competitive and viable businesses for more than 50 years – underpinned by access to abundant raw materials, reliable and affordable infrastructure, a positive investment climate, high levels of technological expertise within the industry, as well as access to competitively priced energy based on world class resources. However, Australian EITE industries are currently operating under difficult economic and market conditions. The effects of the high Australian dollar, low aluminium price, high global inventories, and ever increasing input costs are putting significant pressure on local producers (Box 1).
Hydro Aluminium Kurri Kurri Cuts Production “So far, Norsk Hydro has cut 60,000 tons of capacity at its Kurri Kurri smelter in Australia, an operation plagued by high energy prices and hit by the appreciation of the Australian dollar against the U.S. dollar. The company could cut more, but no decision has yet been made.” (Europe Business News, Feb 16 2012)1 “In January, Hydro announced it would cut the smelter’s 180,000-tpy production capacity by one third, at a cost 150 jobs and around $20 million… Australia’s strong currency, high labour costs and challenging power situation also contributed to the curtailment decision.” (Metal Bulletin, Feb 20 2012)2 Point Henry Under Review “The smelter is losing money because of low aluminium prices, rising costs, such as electricity, and the strong dollar, forcing a review to decide on production cuts.” (SMH, Feb 9 2012)3 Box 1
1
2
http://online.wsj.com/article/SB10001424052970204792404577227302941985144.html http://www.metalbulletin.com/Article/2982054/Base-metals/Kurri-Kurri-is-Hydros-most-troubled-plant-could-cut-productionfurther.html?eventcookielogin=Login&cookielogin=1 3 http://www.smh.com.au/nsw/more-job-cuts-likely-as-alcoa-puts-point-henry-under-review-20120208-1reud.html 2
When coupled with likely increases in energy prices into the future and the imposition of existing energy efficiency and climate policies and programs; such as the Clean Energy Future package, the Renewable Energy Target, Energy Efficiency Opportunities, NSW Energy Savings Scheme, and Victorian Energy Efficiency Target – the future is increasingly challenging for EITE industries in Australia. Therefore, the Australian aluminium industry does not support the imposition of what would be yet another potentially costly policy on top of the increasing number of existing and proposed policies and programs at both the Federal and State level. Independent Reviews There have been a number of reviews and papers over recent years looking at various energy efficiency and climate policies and programs. The Productivity Commission4, for example, found that the introduction of a price on carbon would strengthen the existing primary market mechanism encouraging energy efficiency (i.e. the price of energy), and separate energy efficiency schemes were unwarranted. In a separate report, the Wilkin’s Review5 concluded “…the extent of energy efficiency’s contribution to national emissions reductions should be left to the carbon market to determine. Measures which seek to ‘accelerate’ the take up of energy efficiency, through various means, are inconsistent with a commitment to least cost abatement.” Other Key Issues Bearing in mind the AAC’s reservations in proceeding down the path of a national ESI and the likely additional burden such a scheme would place on industry - there are a number of key issues relevant to EITE industries that need to be considered when thinking about a national ESI. ESI Objectives The AAC is concerned that there does not yet appear to be a core objective providing clear direction for any potential ESI policy. The Issues Paper canvases a range of objectives and associated policy options, with the possibility of very different policy outcomes depending on the chosen path. EITE Assistance The Government recognises that carbon pricing in Australia, without similar price imposts on competing countries, has the potential to seriously disadvantage emissions-intensive tradeexposed (EITE) industries. Therefore, the CEF legislative package will provide assistance to EITE industries through the Jobs and Competitiveness Program (JCP) at the rate of 94.5 per cent for highly emission intensive industries and 66 per cent for moderately intensive industries. Other programs, such as the Renewable Energy Target (RET) and the NSW Energy Savings Scheme (ESS), also recognise the competitiveness impacts on EITE industries.
4
5
2008 Submission to the Garnaut Review (www.pc.gov.au/research/submission/garnaut) Strategic Review of Australian Climate Change Programs (www.finance.gov.au/publications/strategiv-reviews/index.html) 3
A national ESI would need to recognise the vulnerability of EITE industries in the absence of similar cost imposts on global competitors, and put in place measures to minimise the adverse impacts on local producers. In the AAC’s view this would be best achieved by removing EITE industries entirely from coverage of a national ESI. Barriers to the Uptake of Energy Efficiency Improvements Any national ESI would also have to take account of existing barriers to the uptake of energy efficiency improvements. It should be noted that these barriers do not represent market failures. In alumina refining and aluminium smelting the most likely barriers include: - The high capital cost and inefficiency associated with early technology replacement for long-life assets; - lack of investment capital due to unfavourable regulatory and economic conditions - policy uncertainties (e.g. future national and global climate change policies and measures); - the availability of globally-competitive, long-term energy contracts; and - taxation depreciation arrangements. Removal of Existing Energy Efficiency Programs The passage of the Clean Energy Future legislative package will see the introduction of an explicit carbon price from 1 July 2012. This will create a powerful incentive for energy users to seek out cost effective energy efficiency opportunities within their operations, over and above the extensive programs and measures they already have in place. Therefore, existing Federal and State policies and programs aimed at achieving cost effective savings opportunities, such as: the Energy Efficiency Opportunities program, NSW Energy Savings Scheme and the Victorian Energy Efficiency Target; should be wound down and eventually removed. Keeping such duplicative programs active would only add to the already significant administrative and compliance burden on industry. Conclusion Thank you for the opportunity to provide comments on the Issues paper. Please do not hesitate to contact me if you have any questions. Yours sincerely,
MICHAEL ISON MANAGER – POLICY AND RESEARCH AUSTRALIAN ALUMINIUM COUNCIL T: 02 6267 1800 [email protected]
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APPENDIX 1 3th May 2010
Secretariat to the Task Group on Energy Efficiency c/- Department of Climate Change and Energy Efficiency GPO Box 854 Canberra ACT 2601
PO Box 63, Dickson ACT 2602 Ph: 6267 1800 Fax: 6267 1888 [email protected]
Email: [email protected]
Australian Aluminium Council submission on the Prime Minister’s Task Group on Energy Efficiency Issues Paper The Australian Aluminium Council (AAC) welcomes the opportunity to make this submission on the Prime Minister’s Task Group on Energy Efficiency Issues Paper. Key Points •
Australian aluminium smelters and alumina refineries run at or close to world’s best practise for their technology types.
•
Improvements in energy efficiency predominantly require capital investment. In a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency.
•
Any new energy efficiency policy or programs must take account of the impacts of existing or proposed Australian climate change policies, such as an Emissions Trading Scheme (ETS) and the Renewable Energy Target (RET), or risk seriously damaging the international competitiveness of energy-intensive Australian industries such as aluminium and alumina.
•
Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment.
•
Assistance could be given by the Government during the design phase to ensure maximum energy efficiency.
•
For these reasons, the AAC strongly opposes mandated approaches to investment in energy efficiency projects – more can be achieved through government and industry working together in partnership.
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Industry Background Australia is the world’s leading producer of bauxite (70.8 Mt in 2008), second largest producer of alumina (19.8 Mt) and the fifth largest primary aluminium metal producer (1.98 Mt). Globally, aluminium production declined by around 15 per cent in 2009 as a result of the Global Financial Crisis; however, Australian smelters took the lightest hit (around 2 per cent reduction) to production due to the low-cost and energy efficient nature of their operations. The Australian primary aluminium industry is a major electricity consumer, dominated by continuous baseload demand. Whilst the industry is a major domestic user of electricity, Australian aluminium operations are amongst the most energy efficient in the world due to sound management and continual investment. In 2008 the industry used 29,700 GWh of energy - around 11.6 per cent of Australia’s electricity consumption in 2008. The energy used in aluminium smelting is around 25-30 per cent of operating costs. Australia’s alumina industry is also a major energy user, requiring mainly heat and steam to refine bauxite to alumina. The energy used in alumina refining is also around 25-30 per cent of operating costs, and the energy intensity of alumina refining has improved by 12 per cent since 2002. Cogeneration has been implemented at some sites, predominantly gas fired. Co-generation is under consideration at other sites, where appropriate gas contracts can be sourced, and represents a significant opportunity for improved energy efficiency if the investment can be found to be viable. Improvements in energy efficiency in the Australian aluminium industry and performance of Australian facilities against global competitors are shown in figures 1-3 below. Australian Primary Aluminium Production & Smelter Energy Consumption 15.500
2,500,000
15.400
15.300
15.200
15.100
1,500,000
15.000
14.900
1,000,000
14.800
14.700
500,000
14.600
14.500
0 1990
1993
1994
1995
1996
1997
1998
1999
2000
2001
metal (tonnes)
2002
2003
AAC MWh/tAl
Figure 1: Source: Australian Aluminium Council data
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2004
2005
2006
2007
2008
2009
MWh/t Aluminium
Prodcution (tonnes)
2,000,000
Electrical Power used per tonne of aluminium production (2008) 16,000 15,800
kWh per tonne
15,600 15,400 15,200 15,000 14,800 14,600 14,400 Africa & South Asia
North America
Latin America
Asia
Europe
Oceania
Weighted Average
Figure 2: Source: International Aluminium Institute
Energy used per metric tonne of metallurgical alumina (2008) 17,000 16,000
Megajoules Per tonne
15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 Latin America
Africa & East Asia and South Asia Oceania
Europe
North America
Weighted Average
Australia*
Figure 3: Source: 2008 International Aluminium Institute & Australian Aluminium Council data (*)
Australian aluminium smelters and alumina refineries run at or close to world’s best practise for their technology types.
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The Need for Competitive Energy Without Supply Reservations The price of aluminium is set globally on the London Metal Exchange (LME) (and alumina as a percentage of this), limiting the ability of Australian producers to pass on the cost of energy price increases to customers. Such cost imposts at national and/or state level that are not also imposed on competitors will undermine Australia’s international competitiveness. Without competitive energy, growth in Australian alumina and aluminium production will not occur and existing operations may be prematurely phased out. With electricity dominating the controllable costs in aluminium smelting, the AAC has serious reservations with any policy initiatives which impose mandated market conditions or limits within the electricity market that result in (unrecoverable) increased energy costs for the industry. The AAC strongly opposes mandated approaches to investment in energy efficiency projects – more can be achieved through government and industry working together in partnership. Investment is the key Australia’s alumina refineries and aluminium smelters are long-life and relatively expensive investments – valued at over $50 billion in today’s dollars. The AAC estimates that a large (500kt) aluminium smelter requires around $50 million per annum in capital investment just to sustain operations. This investment that must be drawn from a limited pool within each corporation - operations are competing for access to this capital within their own global corporations. Given the historical focus on minimising costs, including energy costs; significant improvements in energy efficiency are only likely to be achieved through significant investment of capital to update technology or replace key energy components of facilities. It is easy to see that any cost pressures that result from policy interventions will place pressure on such investment and make it harder for Australian operations to compete for the funds required to maintain their highly efficient operations. An ETS and the expanded RET are examples of policies that will, even with the proposed assistance for emissions intense trade exposed (EITE), significantly increase energy costs for Australian EITE industries. Energy is a significant part of the cost base for aluminium smelting and alumina refining; however, it is but one of a number of business inputs alongside of project and business risks, capital expenditure constraints, asset life and other raw material costs. In order to be able to consider undertaking what will most likely be large-scale projects to improve energy efficiency, alumina refinery and aluminium smelter operators will need access to significant investment dollars, which will simply not be available if poor policy options push energy costs too high. Given the structure of Australia’s economy, its natural areas of competitive advantage and the circumstances of competitors, Australia must ensure that any measures introduced to address energy efficiency and climate change are globally effective and do not impact on the global competitiveness of key Australian industries.
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Improvements in energy efficiency predominantly require capital investment. In a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency. Any new energy efficiency policy or programs must take account of the impacts of existing or proposed Australian climate change policies, such as an ETS and the RET, or risk seriously damaging the international competitiveness of energy-intensive Australian industries such as aluminium.
Australian Aluminium Industry - Committed to Energy efficiency The Australian alumina and aluminium industry is currently competitive as a result of abundant raw materials, reliable and affordable infrastructure, a positive investment climate, a high level of technological expertise enabling world’s best practice in smelter operation, as well as access to competitively priced electricity based on Australia’s world class resources. The industry is continually improving its energy efficiency, not only through constant and close management of key energy and electricity-intense processes, but through major technology upgrades when investment and operational conditions allow. Some examples of major smelter or refinery upgrades that have led to significant improvements in energy efficiency over recent years include:
•
Tomago Smelting Energy Efficiency Project (2009-2014) –
– –
•
Tomago Aluminium has received accreditation for an energy efficiency project under the NSW Energy Savings Scheme (2009), aimed at progressively reducing the rate of electricity consumption in the electrolytic conversion process over several years through a number of technology improvement initiatives These initiatives include reducing losses from high amperage buss bars, introducing modified carbon anodes and cathodes, as well as refining cell operating parameters Potential savings in greenhouse gas emissions are in the order of 60,000 tonnes per year
QAL Project to Replace Rotary Kilns for Calcination (2004) – –
– •
$175 million to replace rotary kilns with three gas suspension units The more energy efficiency units use 25 per cent less natural gas and have resulted in a saving of 250,000 of CO2 emissions 95 per cent reduction in particulate emissions
Hydro Kurri Kurri Smelter Upgrade (2005) –
–
–
$40 million upgrade to Potline No.1, replacing old (1968) technology with new (sideworked pre-bake) in order to increase metal production, reduce greenhouse emissions and improve safety Resulted in an annual increase of 6,800 tonnes from increased amperage and improved current efficiency Reduced emissions of dust, fluorides and perfluorocarbons by between 50-95 per cent.
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•
Pinjarra Refinery Co-generation and Efficiency Project (2006-2007) –
– –
– •
$800 million upgrade of existing equipment and best-practice technology including significantly improved heat exchange systems and to install new emissions control equipment Alumina production increased by 17 per cent (660kt) whilst decreasing energy use Two new Alinta gas-fired co-generation units at Alcoa’s Pinjarra refinery were commission to generate electricity for third-party customers, with the waste heat used to create steam for use by the refinery – reducing energy consumption by approx. 0.52 GJ/t of production A strategic analysis in 2007 identified 15 energy efficiency opportunities which, if implemented, could reduce energy intensity by a further 5 per cent over 5 years6 Energy Efficiency at Alcoa’s Point Henry Smelter
–
– –
–
•
Partnership with Sustainable Energy Authority of Victoria (SEAV) with a primary focus on examining combustion efficiency in the anode baking process (representing about 3 per cent of overall smelter energy usage) Results show a gas consumption reduction, a reduction in process variability and a greater energy focus with improved productivity This project highlighted the fact that there is always room for improvement in terms of energy efficiency, and that industry must remain open-minded and embrace new initiatives the Alcoa-SEAV partnership highlighted that collaboration between Government and industry can drive additional energy performance...particularly in energy services and supporting operations of energy intensive industries
Alcoa Energy Efficiency Network – –
–
•
Established in 2002 and is based on partnership with the U.S. Department of energy The network conducts energy efficiency surveys at operating locations, identifying areas of possible improvement. The locations then agree which projects will be identified on a priority basis To date, this program has identified more than US$80 million in potential savings opportunities
Boyne Smelter Upgrade – – –
US $617M committed in 2009 to two projects which will modernise and extend the life of the Boyne Island aluminium smelter The first project, construction of a new baking furnace, will reduce onsite greenhouse gas emissions by ~20,000 to CO2-e annually due to improved energy efficiency. The second project, which includes overhead crane replacement and a crane runway upgrade, will result in a more efficient crane/alumina transport system
Australian alumina and aluminium industries are energy intensive, and by default are always looking for ways to reduce energy consumption. From the examples above it can be seen that many large and small-scale projects have been successfully implemented over recent years. AAC member companies will continue to strive to identify and implement such projects into the future. 6
Industry Leader Case Study – Energy Efficiency Opportunities (April 2008) 10
Possible Ways Forward Whilst energy is an important consideration for both alumina refineries and aluminium smelters, it is not the only consideration. Whether for a new smelter or refinery or a significant expansion to an existing facility, other factors (e.g. capital expenditure constraints, and other raw material costs) also affect investment decisions. Energy efficiency projects of the scale needed for alumina refining and aluminium smelting may be assisted through instruments such as preferential tax treatment. This would provide a greater incentive for companies to consider investing in areas of energy efficiency. The approach mentioned above could be coupled with the application of energy efficiency audits for new projects or proposed expansions. The audits would become part of the approvals process for major capital investments and, if best practice energy efficiency can be demonstrated, then the project could be fast-tracked through the process. An example energy efficiency project application for alumina refining is co-generation. Alumina refineries have a requirement for baseload energy (in the form of heat and steam) and therefore are highly suited to the application of cogeneration technology. Conclusion Improvements in energy efficiency predominantly require capital investment, and in a global market investment requires profitability of local operations; therefore any measures that are put in place must minimise the cost impacts on business and the community to ensure that there is sufficient capacity for investment in energy efficiency. Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment. Energy efficiency audits could form part of the approval process for a major capital investment, where a demonstration of significant improvement in energy efficiency would see preferential status given to the project (be it a greenfield or brownfield investment) Thank you for the opportunity to provide comments on the Issues paper. Responses to relevant questions posed in the issues paper are provided in the attachment. Please contact me if you have any questions. Yours sincerely,
MICHAEL ISON MANAGER – POLICY AND RESEARCH AUSTRALIAN ALUMINIUM COUNCIL T 02 6267 1800 M 0429 923 605 [email protected] 11
Attachment A Issues Paper Questions • What do you see as the key goal(s) of
energy efficiency? What is the simplest way of measuring progress against these key goal(s)? • How could these key goal(s) be better communicated to all sectors of Australian society?
AAC Response The key goals of energy efficiency, as mentioned in the Issues Paper, should focus on continuing Australia’s strong economic growth through more energy efficient management of all aspects of the economy. Such an approach will increase our energy security, reduce peak energy demand events, reduce air emissions and lower energy bills for residential and commercial users. However, whatever strategies and measures are put in place to achieve the goals mentioned above, they must recognise the levels of energy efficiency already achieved by Australian operations and not jeopardise the international competitiveness of energy intensive trade exposed industries such as alumina and aluminium. A good measure of the successful implementation of energy efficiency and other related programs would be a strong, growing industry spurred on by positive industry/government partnerships and incentives for industry to confidently invest in energy efficient technology over the short, medium and long term.
• What do you consider a step change in energy efficiency to be?
Step changes in energy efficiency for alumina refineries and aluminium smelters can only be achieved with the right investment conditions.
• Where do you see the greatest potential for a step change improvement in energy efficiency in Australia over the next decade? What can be done to unlock this step change potential?
For alumina refining, for example, this could involve the addition of production units; and for aluminium smelting large scale projects such
• What needs to be done to ensure step change keeps us at the forefront of OECD energy efficiency improvements? • What non-greenhouse co-benefits could be delivered through a step change in energy efficiency in Australia?
as increasing the amperage or the addition of a new potline could be considered. All of the options available to alumina refineries and aluminium smelters require significant levels of investment. For example, the BHP Billiton Worsley alumina refinery expansion is estimated to cost around $US 2.2 billion, and 12
the possible addition of a potline at Alcoa’s • Which existing measures could be part of Portland smelter has been estimated at around delivering step change? What role would $US1.2 billion. they play? Consider Commonwealth, State and Territory, and local measures. Please comment on the relative efficiency of implementation options where applicable.
Effective policies that provide investment certainty and promote strong growth in energy intensive industries will make it more attractive for companies to invest in such long-term and large scale projects. The availability of gas (for alumina refining) and internationally competitive electricity (for aluminium smelting) will also impact on investment decisions.
• What do you believe are the key barriers to uptake of energy efficiency improvements? • What would be the most efficient and effective way(s) of overcoming these barriers? • What groups in society might find energy efficiency actions difficult to undertake or access? How can energy efficiency policies target these groups? • How can energy efficiency measures be implemented in a way that takes into account the different energy needs of urban/regional and remote Australia?
Australian facilities rely on continual investment in order to maintain, and improve where possible, their already high levels of efficiency. If measures are put in place that reduce the competitiveness of our operations, then the ‘maintenance’ investment required to keep Australian alumina refineries and aluminium smelters at the forefront of low-energy technology would be put at risk. The difference between the most energy efficient processes and technologies available and those actually in use will vary widely from sector to sector for a number of reasons.
• How do time-of-day and time-of-year changes in demand influence energy efficiency in Australia?
In alumina refining and aluminium smelting the most likely barriers preventing closure of this ‘energy efficiency gap’ include: - technolgy replacement inertia caused by the very nature of long-life assests; - policy uncertainties (e.g. future climate policies); availability of globally-competitive longterm electricity contracts; and taxation depreciation arrangements -
• What do you see as the critical governance challenges and opportunities
Critical governance challenges are and will continue to be the piecemeal and
for improving energy efficiency in Australia?
uncoordinated development of policies and programs across all levels of government.
• Which institutions should play a role in
A coordinated and streamlined approach has 13
governance arrangements for energy efficiency? Are there international examples of good institutional
the potential to reduce duplication and minimise the economic impact of energy efficiency policies and programs on households
arrangements that Australia could adopt?
and industry.
• What information should be used to provide a stronger evidence base for future policy, monitoring and evaluation? What is the most effective way to collect and distribute this information? • What are the cost-effective ways in which governments can facilitate new investment in energy efficiency? • What can governments do to leverage greater understanding, viability and uptake of more innovative approaches to financing and implementing energy efficiency? • What are some new or different business models that improve energy efficiency? How could governments foster these?
Energy is one, but not the only, business input alongside project and business risks. Preferential tax treatment of energy efficiency investments would help get such projects across the line in a competitive investment environment. Energy efficiency audits could form part of the approval process for a major capital investment, where a demonstration of significant improvement in energy efficiency would see preferential status given to the project (be it a greenfield or brownfield investment)
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